Securitisation of equipment leases forms an increasing proportion of the total ABS market. In USA alone, in 1997, more than $7 billion of equipment lease-backed deals were completed. The increasing investor interest in lease securitisations is witnessed in finer pricing, lesser credit enhancements and several issues being actively traded in secondary markets.

The features of equipment leases will depend upon the type of leased product, transaction size etc. Generally, equipment leases are classified into small ticket, medium ticket and big ticket leases.

Small ticket leases are small transactions, normally of a retail variety, and would mostly include consumer leases. Here, both the product and the obligors are diversified, and the quality of the issuer is given the prime significance.

In the medium ticket segment comes leases of office equipment, printing machinery, small machinery items, etc.

Big ticket items are heavy industry machinery, high cost medical equipment such as MRI equipment, etc. There is a higher degree of concentration here and therefore increased risk.

Technical issue: sale of equipment or mere sale of lease receivables:

In case of lease transactions it is possible for a lessor to merely transfer the receivables, without transfer of the residual ownership interest in the equipment, to the SPV. The practice in this regards differs from country to country, primarily dependant on the issues related to taxation, capital allowances etc. If the lease in question entitles the lessor to capital allowances, presumably by retaining the ownership of the equipment, the lessor will also retain his eligibility to capital allowances. In some countries, the tax issues could be implications of sales-tax/ value added tax on sale of the equipment.

In US practice, rating agecies (for example, Standard and Poor's) have taken the view that a true sale cannot be safely assumed where only the receivables are sold and not the equipment [See S&P special report titled Revised UCC Article 9 Yields Simplified Filing Procedures for Equipment Lease Securitizations, dated 8th June 2002].